Bank of New York merges with Mellon in £8bn deal

Bank of New York agreed a $16.5bn (£8bn) deal to acquire Mellon Financial Corporation yesterday, combining two of the most venerable names in American business.

The deal is the latest in the consolidation of the United States financial services industry, which has been convulsed by a series of huge mergers and takeovers.

The agreement creates a top 10 global asset management group, with $1.1 trillion invested. It will also be among the largest "securities servicing" firms in the world, providing for financial institutions including execution, independent research, clearing, securities lending and other so-called "custody" services for assets. The combined market value of the two is $43bn and it will rank as the 11th largest financial institution in the US.

Bank of New York-Mellon Corporation will cut 3,900 jobs from its 40,000-strong combined workforce. It said it hoped that most of the cuts would come from natural attrition. They expect to strip out $700m in costs.

But there was reassuring news for residents of Pittsburgh, a former steel base in the "rust-belt" of the American north-east, where Mellon is based. The Bank of New York said it intended to create up to 2,000 jobs in the city, partly because of lower labour costs.

Among other deals in the past few years, Bank of America has paid $35bn for the credit card firm MBNA and $49bn for its rival FleetBoston; JP Morgan Chase paid $59bn for BankOne; and Wachovia, the fourth-biggest American bank, paid $14bn for SouthTrust Corporation, with branches throughout the American south.

Bank of New York was founded in 1784 by Alexander Hamilton, who went on to become the first US treasury secretary. Mellon was founded in 1869 and was known for helping to finance the US steel industry. Andrew Mellon, who ran the company after his father died, also served as the US treasury secretary.

Robert Kelly, Mellon's chief executive, will take the same job at the merged firm. Thomas Renyi, chairman and chief executive of Bank of New York, will serve as executive chairman of the merged operation for 18 months, charged with the integration of the two businesses.

Mr Kelly said the two firms would fit well together. "Mellon is huge in asset management and has a nice asset servicing ability as well. In contrast, Bank of New York is huge on the asset-servicing side and security servicing but smaller in asset management," he said.